Economist Fatih Birol says if Middle Eastern oil is downplayed, it could have implications for investment there.

Economist Fatih Birol says if Middle Eastern oil is downplayed, it could have implications for investment there.

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near the town of Deriq, in a Kurdish area of Syria, near the border with Iraq. Syria's vital oil industry is breaking down as rebels capture many of the country's oil fields, with wells aflame and looters scooping up crude, depriving the government of much needed cash and fuel for its war machine against the uprising.(AP Photo/Manu Brabo, File) less

near the town of Deriq, in a Kurdish area of Syria, near the border with Iraq. Syria's vital oil industry is breaking down as rebels capture many of the country's oil fields, with wells aflame and looters ... more

Photo: Manu Brabo, STR

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An oil pump works in Bahrain. Economist Fatih Birol warns against counting out Middle Eastern oil.

An oil pump works in Bahrain. Economist Fatih Birol warns against counting out Middle Eastern oil.

Photo: Hasan Jamali, STR

Don't write off Mideast oil, economist says

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The International Energy Agency's chief economist says the West is making too much of predictions that the United States will surpass Saudi Arabia as the world's largest producer of oil.

"I think not only in the United States, but also in Europe, many people believe that after the shale revolution the importance of the Middle East is diminishing," Fatih Birol, the agency's chief economist, said in an interview this week with the Houston Chronicle. "I think this is not only wrong from an economic point of view, but also from a policy point of view. It is misleading."

The result of downplaying the significance of the Middle East could be substantial, Birol said.

"It is a problem because if this hinders the investments in the Middle East countries for new oil fields - and I see already some signs in some countries that the investment decisions are being postponed - then we may well have difficulties in the next few years when we need the growth coming from the Middle East countries," he said.

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The agency said in November that the United States' oil production will surpass that of Saudi Arabia by 2015, two years earlier than the agency previously predicted. But the significance of Middle East oil production has not changed, Birol said.

"There is one major resource base in the world which could meet the growth in the global oil demand, which is the Middle East," he said. "Without the Middle East, we will not be able to meet the growth, specifically in Asia."

Birol spoke to the Chronicle after making a presentation at Rice University's Baker Institute, in which he highlighted themes from the agency's World Energy Outlook released in November. The Paris-based International Energy Agency analyzes global energy trends for its member countries, including the United States, Canada, Japan and European nations.

The shale boom has made the United States less dependent on imported crude, but oil produced from Middle East still plays a fundamental role in meeting energy demand, said Andrew Lipow, president of Houston-based consulting firm Lipow Oil Associates.

The United States imported 9.3 million barrels of oil per day in November, the most recent month for which data is available, according to the U.S. Energy Information administration. Of that total, 2.1 million barrels per day were imported from Persian Gulf countries, including Saudi Arabia, Iraq, Kuwait and Bahrain, according to federal data.

The United States produced 7.8 million barrels of oil per day in November, according to the data.

"While it has reduced the U.S. reliance on imports, that oil is now being sold elsewhere primarily in Asia to meet their growing demand for petroleum," Lipow said.

Investment decisions, however, are not likely to be swayed simply by misguided perceptions about the diminishing importance of Middle East production, Lipow said.

"I look at it more simply and say oil is $100 a barrel, where are investors going to place their money to receive adequate returns?" he said.

Some investors may be more comfortable funding oil development in the United States versus fields in more unstable regions, such as the Middle East, Lipow said.

"What's happened in the U.S. is a factor that shapes perceptions about the oil market, but it's far from the only variable that determines whether or not investment goes ahead," said Jim Burkhard, head of global oil market research for IHS.

Burkhard agreed, however, that the role of Middle East oil has not declined as a result of growing production in the United States.

"What's happened in the U.S. and North America overall is vitally important to the world oil market, but that doesn't mean that the Middle East is suddenly irrelevant," he said.

The U.S. oil and gas boom is creating undeniable benefits within the country that are affecting other countries worldwide, Birol said.

Natural gas in the United States costs a third of the price for the resource in Europe and a fifth of the price in Japan, he said. That has made energy costs lower for manufacturing and refining facilities in the United States, making plants elsewhere in the world much less competitive, he said.

The trend likely will lead to several closures of refineries and manufacturing plants in Europe within the next five years, as many of those plants will simply be unable to compete with U.S. plants that will be able to charge less for their products because of lower energy costs, he said.

That will mean loss of jobs and economic benefits, Birol said.

The U.S. will likely have lower energy costs than Europe, Japan and China for decades because of natural gas produced from shale, he said.

Birol has passed that message on to leaders of European countries that are likely to face the challenges.

"They don't like what I'm saying, but this is definitely the reality of what is happening," he said.